SEM & ISEM - The (Integrated) Single Electronic Market
The SEM or Single Electronic Market, was the wholesale electricity market for Northern Ireland and the Republic of Ireland, governing the all-ireland electricity sector. The SEM was established on November 1st 2007 by unifying Eirgrid (the Republic of Ireland’s transmission operator) with the System Operator Northern Ireland (SONI). This is very much in keeping with the EU principles of free trade across borders.
ISEM is the successor to SEM; known as the Integrated Single Electronic Market, which took over from SEM on the 1st of October 2018. The ISEM is the product of applying the SEU Target Model for electricity to SEM.
Who are Eirgrid?Eirgrid is the electricity transmission system operator in the Republic of Ireland. They took over the role from ESB networksin July 2006. ESB continues to manage the distribution system. Both Eirgrid and SONI are owned by the Eirgrid plc group.
Confusingly, although the ISEM now manages the market, the decision-making committee for it is called the SEM Committee. The Committee is composed of two independent members, members from the Republic of Ireland’s CRU (Commision for Regulation of Utilities), and members from Northern Ireland’s Utility Regulator. To further complicate the situation, the actual day to day operations of the ISEM are run by SEMO (Single Energy Market Operator), owned by Eirgrid plc.
The island of Ireland currently generates its electricity from coal, hydropower, natural gas, peat and wind power. The ISEM has over 2.5 million customers and all electricity generated or imported into Ireland must be bought and sold through it.
Recently the impact of Brexit on the ISEM has been of great concern across the island of Ireland, but as no concrete exit deals have been hammered out as of yet, only time will tell what impact it will have.
How does ISEM work?
Previously, with SEM, Electricity generators submitted bids to SEM to generate electricity for 30-minute slots of the following day, and bids were queued up in order of least expensive to most expensive, with electricity demand being met firstly by the cheaper bids at the start of the queue.
ISEM however, provides the opportunity for generators to submit bids at several points during the course of a day and provides much more flexibility with regards to the way generators and suppliers can take part in market trading.
ISEM provides much more electricity generation from renewable sources than SEM initially did. A key reason for rebranding SEM as ISEM is to try and take advantage of the increased interconnection between energy markets across Europe.
The changes brought about by the new ISEM system benefit customers in three ways:
- They assure the security of supply by facilitating cross-border trading and best use principles. By trading energy with the rest of Europe, Ireland benefits from the economy of scale found in the EU's larger system.
- It is intended to be much more competitive than SEM, thereby increasing the possibilities of customers benefiting from electricity transmission and supply cost reductions.
- It aims to minimise the price pressures the island of Ireland faces due to its geographical location, and to maximise the use of renewable electricity generation. As renewable energy has a zero-fuel cost and thus is less expensive to generate, this should hopefully result in further future electricity price reductions.
ISEM is also planning significant upgrades to the electricity infrastructure networks on the island of Ireland, based on increasing sustainable energy sources.
The EU is committed to allowing energy to flow freely in Europe without any barriers, in order to encourage competition and the best prices for consumers. Although much investment has been made into the EU energy market over the previous years, it is still felt to be underperforming and new objectives and plans are being put into place to work on increasing capacity and connectivity.
The end goal for the EU is a “supergrid”, where excess renewable energy generated in one state could be diverted to others, or in case of power failures, other states could help fill the gap when demand outstrips supply.
Many systems similar to ISEM, where countries share energy grids, are currently being planned across Europe. Of particular relevance to Irish customers is the ISLES project, which would link Ireland, Northern Ireland, and Scotland, to various renewable resources such as wind and wave energy.
Feasibility studies and research for the ISLES project were completed in 2015, but as it was part-financed by the EU, and the vote on Brexit occurred shortly afterwards, it remains to be seen whether it will go ahead, and where the funding will come from.
Projects are also underway for connecting the three Baltic states (Estonia, Latvia, and Lithuania) to Europe. They have already had their electricity grids successfully connected up to Sweden, Poland and Finland, and are now among the best interconnected states in Europe
After the results of the Brexit referendum in June 2016 became known, the SEM committee affirmed that “there are good economic reasons for the all-island market which exist independently of European Union law or policy.”
However, customers remain uneasy as no deal appears to be on the table between the UK and the EU. The ISEM is a bilateral agreement between the UK and Ireland, but not part of EU structures. It is based instead on the membership of both countries of the Internal Energy Market.
As such, fears are that it may not be prioritized when negotiating the separation of the UK from the EU, and any deal brokered will not be as good a deal as the current one. A no-deal scenario could also potentially lead to supply shortages and price increases on both sides of the Irish border.
Leaked UK government documents in September of 2017 were widely reported on across the media, warning of blackouts, electricity market collapse, and a return to dependency on diesel generators. The UK government declined to comment at that time, which was not reassuring.
ISEM is the result of independent agreements between Ireland and the UK and in theory should be unaffected by the UK’s withdrawal from the EU. However this is further complicated by Ireland’s membership of the EU, and as such, being subjected to EU regulations concerning energy generation and supply. The ISEM is beneficial for both the Republic and Northern Ireland and nobody wants to see it dissolved.
We are eagerly awaiting updates on the exit plan regarding the ISEM, in order to analyze and communicate any potential impact to Irish customers. In the meantime, ISEM or no ISEM, switching every 12 months is still the best way to ensure you get the most economical energy. Call us today at Selectra and we’ll make switching as painless as possible.